Tax Issues Concerning Day Care Homes

Administering agencies have in the past expressed concern over two federal income tax issues connected with Child Care Food Program (CCFP) operations in day care homes: (1) tax status of program reimbursement to providers and (2) possible responsibility of home sponsors for Social Security and unemployment contributions for providers.

With respect to the first issue, providers should be made aware that cost records may be requested by IRS, even though they are not required for home providers by CCFP regulations.

Regarding the second issue, sponsor responsibility depends on whether providers under a given sponsoring organization are considered employees, or are deemed to be self-employed. Provider status can vary from sponsor to sponsor. Only IRS can establish policy and procedures relative to these issues.

State agencies should alert sponsoring organizations of homes to these issues and refer them to IRS for further guidance. Revenue ruling 79-142 states the most recent official IRS position on the CCFP. It might be of general assistance to home sponsoring organizations in dealing with the subject tax issues and could serve as an appropriate point of departure for discussions between them and local IRS officials. Administering agencies may therefore wish to distribute the ruling, made available to them in 1979, to home sponsors. An additional copy is attached as Exhibit A for your convenience.

Jordan Benderly
Director
Child Care and Summer Programs Division